Newsquest: is a sell-off feasible?

It is clear that regional newspaper consolidation will take yet another turn in the near future. Or should that be regional newspaper disaggregation? The chances of anyone swallowing one whole group looks unlikely, so I'd imagine that it will be bought in bits and pieces.

But who will be the first on to the block? Johnston Press looks vulnerable, because of its low share price, but I have a hunch it will hang on for a while. Trinity Mirror has problems, but there is a business strategy in place that might well see it through the horrors of the current financial crisis.

Northcliffe is probably secure despite the aborted attempt by its parent, Daily Mail & General Trust, to dispose of it. So that leaves Newsquest, the fourth-largest regional chain by circulation, which is owned by the ailing US media conglomerate, Gannett.

The same day Gannett also revealed that Standard & Poors had placed its long and short term credit ratings on credit watch, a move with obvious negative implications. In a response aimed at reassuring investors, Gannett's chairman, Craig Dubow, said: "Our underlying fundamentals remain strong and we continue to be a solid investment grade company."

According to a statement quoted by Editor & Publisher, the borrowing to pay down debt, which was described as "a prudent liquidity measure in light of the ongoing credit market", was unrelated to S&P's decision. Really?

The double announcements were an uncomfortable coincidence for the publisher of 85 daily US papers, including the national title, USA Today. Two months ago it announced that it would cut 1,000 US newspaper jobs (about 3% of its total workforce) due to advertising sales weakness.

It is that weakness, contends a FollowTheMedia article, that probably spooked S&P. Gannett's print ad sales fell 16.8% in August with the company's total revenue down by 9.5%. Even if Gannett has reserves to fall back on, can it go on reorganising and firing people in order to ride out the economic storm?

Instead, will it choose to rid itself of its British arm? Newsquest has 210 British papers, selling a total of 9.1m copies a week. There are 18 dailies in its stable, including the Glasgow Evening Times, Bradford Telegraph & Argus, Southampton Echo and Lancashire Telegraph, and 68 paid-for weeklies.

Many of its dailies have suffered from terrible circulation declines. The Brighton Argus is selling just over 30,000 and falling, the Oxford Mail sold fewer than 24,000 in June and the Colchester Evening Gazette is barely selling 21,000.

As I reported in July, when Gannett reported a 36% decline in second-quarter earnings, its major losses occurred at Newsquest, which saw classified advertising collapse by 19.3% in June.

So, all in all, the signs point towards Newsquest as the most likely victim of the down-turn. But, even if rival groups or local managers think some of the weeklies have a future, who really wants 18 failing regional daily papers.